The government of Rodrigo Chaves will receive the country with a slowdown in the growth of public debt, confirmed the Comptroller General of the Republic (CGR). In addition, there was an improvement in the risks of having high percentages of debt payable in the short term and in foreign currency, but the level of obligations with variable interest rates was not alleviated.
In 2021, the Central Government debt reached ¢27.3 trillion (millions of millions), a figure equivalent to 68.3% of the gross domestic product (GDP).
While it is the highest amount in recent history, last year’s growth rate was the lowest in eight years.
The debt increased by 12.3% due to an improvement in tax revenues and the acquisition of external loans with better rates. In contrast, between 2011 and 2021, the average annual growth rate was 15.6%.
During the administration of Laura Chinchilla, in 2012, for example, the debt registered the largest increase in the last decade between one year and another: 25.7%%. A year later, always under her mandate, the increase fell to 11.4%, a figure that has not been repeated since then. As of 2014, it grew again to levels of almost 20%, as was seen in 2016 in the mandate of Luis Guillermo Solís. In 2018, the Administration of Carlos Alvarado reduced growth to 16.9%; in 2019 to 14.2%; in 2020 to 14.4% and in 2021 to that 12.3%.
In a report published on May 1, the Comptroller’s Office explained that, for the debt to be sustainable, it must represent a maximum of 50% of GDP. Currently, indebtedness is 18 percentage points above the ideal, or natural debt limit (NDL).
“Improvements are observed in some of the government debt indicators in 2021. However, measures that favor sustainability are required: reduce the weight of debt service in the budget and in the economy, manage the structure of the portfolio towards the levels defined as optimal, manage pre-funding that reduces the risk of eventual liquidity problems, as well as seek to converge towards the natural limit of debt”, added the CGR.
Last year, both the internal and external debt grew at a slower rate than that observed in the previous two years, despite the fact that, in 2021, the decentralized bodies were incorporated into the accounting of the Central Government.
The estimate of the Comptroller’s Office is that, without the incorporation of the decentralized bodies, the real growth of the Central Government’s debt was 11.7%, almost the same figure as in 2013, in which the lowest growth of the Central Government was recorded. previous decade.
“This largely responds to the fact that the inflow of external resources, although it has generated higher growth rates for the external debt, was accompanied by minor variations in internal liabilities, the main component of the Government’s obligations,” explained the CGR.
One of the improvements is that debt as a percentage of GDP grew by 1.6 percentage points, also the lowest growth in the last eight years.
In 2020, on the other hand, the debt-to-GDP ratio grew by almost 10.7 points, the highest in eight years.
The Comptroller’s Office explained that, in this relationship, although interest rates and the depreciation of the exchange rate caused a growth in debt, this was offset by the growth in economic production.
Added to this were the Government’s efforts to reduce the primary deficit, which closed at 0.28% of GDP, a situation not seen for 13 years. The primary balance is the result of income minus expenses, without taking into account the payment of the government’s public debt.
Salary spending growth slowed to 0.4% in 2021, for example.
When the government of Carlos Alvarado took office, in the midst of a fiscal crisis that had not been addressed in previous years, the public debt was equivalent to 51.6% of GDP, the ideal figure within the NLD. A year later, it rose to 56.1%; in 2020 to 66.8%, until closing 2021 at 68.3%.
The Comptroller’s Office explained that the government of Carlos Alvarado managed to reduce the risk of refinancing, that is, the percentage of debt placed with a term of less than one year to pay.
The percentage of short-term debt placed fell from 10% to 8.9%, which places it within the “desirable” limits.
However, the demand by investors for short-term instruments remains, so the reduction of this risk becomes relevant for the next government.
Exchange rate risk
Another of the risks that gave way was that related to exposure to the exchange rate. Between 2020 and 2021, the percentage of debt in foreign currency fell from 41.5% to 39.8%, thanks to the fact that “the Government managed to increase placements in colones in the domestic market, allowing to reduce exposure to that risk.”
However, this indicator still needs to drop five percentage points to reach the desirable limit: 35%.
Variable rate risk
Regarding the risk represented by having debt with variable interest rates, the percentage did not improve. 22.1% of the total debt has this condition, when the recommended maximum is 20%.
At the end of 2021, the Government’s liquidity in its General Fund improved compared to 2020, going from 0.1% of GDP to 0.7%.
In this framework, the Comptroller calculates a relationship that consists of what percentage of debt maturities each year could be paid with liquidity. The year before last, the result was 1.3% and last year it rose to 11.8%.
The Chaves government will have to pay ¢9.6 billion colones of public debt during the four years of his government, an unprecedented figure in the last 20 years.
Only in 2023, for example, the Government must return, without fail, the $1,000 million (¢650,000 million) obtained through the placement of Eurobonds 10 years ago during the administration of Laura Chinchilla.
The balance of the Government’s debt does not include pending obligations with the Costa Rican Social Security Fund (CCSS), as a result of transfers not made, because they have not yet been reconciled with the institution. According to the Ministry of Finance, these contingent liabilities reach ¢2.3 trillion.